When tax season rolls around, it’s a busy time for everyone, including your Homeowners Association (HOA). Although HOAs are non-profit organizations, they are still classified as businesses by the Internal Revenue Service (IRS) and therefore have the same tax filing obligations as any corporation. This means that even if your HOA is non-profit, the IRS treats it as a corporation for tax purposes. As a result, HOAs are required to file tax returns, including state returns in certain states.
However, filing tax returns does not automatically mean that the HOA will owe taxes. It is essential to understand the rules and regulations before filing to avoid potential issues. HOA tax returns also require special attention to different types of income and expenses.
While the IRS recognizes your association as a corporation, there is a specific provision in the tax code, Section 528, that applies specifically to associations like yours. By filing under Section 528, certain portions of your HOA’s income can be exempt from taxation. This exemption only applies to specific types of revenue, so understanding your tax status and setting up accurate record-keeping is critical.
Our goal is to make the process of preparing your HOA tax return as smooth as possible and help minimize the taxes you owe through strategic planning.
Filling out Form 1120 makes all of an HOA’s net income liable to be taxed. This form, typically utilized by corporations, is more intricate and requires substantial effort. It also calls for a higher level of accounting proficiency. On a positive note, it offers a lower tax rate (15%) for the initial $50,000 of income.
Form 1120-H can be chosen by HOAs as an alternative instead of the initial form (as allowed under section 528 of the IRS). It’s less complex but has specific requirements: 60% income from members, 90% expenses for maintenance, 85% residential units, no community member benefits from annual income
The purpose of CA Form 100 is to reveal the financial info of a corporation, evaluate its taxable income, and determine its responsibility for state income tax. The California Corporation Franchise (Income Tax Return) is a tax form used by corporations operating in California. It is used to report income and fulfill tax responsibilities.
CA Form 199 is a yearly information return that tax-exempt organizations and specific nonprofits submit to the Franchise Tax Board (FTB) in order to disclose their financial information and activities as mandated by tax filing regulations.